What is the annual interest rate on a 12,000 loan when the interest payments are 960 dollars semi-annually on the full amount of the loan ?
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A. 16% or .16
First, multiply 960 times two to derive the total annual amount of the semi-annual payments, and we get the sum of 1920.
Now, let's devide the full amount of the loan, 12,000 dollars into the combined semi-annual total of 1920 and we find that we have .16 or 16% annual interest.
Another way of doing it is to divide the total loan amount by two and find that we have 6000. Then we take one of the semi-annual interest payments, 960 dollars, and divide 960 by the semi-annual sum of the loan amount, 6000, and also discover that we have .16 or 16% annual interest rate on the total loan.